Chapter 13 bankruptcy is meant for people with regular incomes. Chapter 13 bankruptcy involves charting out a repayment schedule for the debtor in order to make it possible for the debtor to repay the debt over a 3-5 year period. The bankruptcy court facilitates and overlooks the whole process. It is important to note here that this repayment period cannot be more than 5 years and the choice of 3/5 years is based on certain criteria as defined in the bankruptcy law (it is based on debtor’s current monthly income vis-à-vis the median income in the state).
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Also, it is important to note here that the creditors are forbidden to approach the debtor for collection etc if the debtor is has filed chapter 13 bankruptcy petition.
Chapter 13 bankruptcy requirements
Only individuals are allowed to file for chapter 13 bankruptcy. It is not meant for corporations and partnership firms. So, in that sense, you can also call it chapter 13 personal bankruptcy.
Also, there are certain conditions on amount of secured and unsecured debt that you should owe in order to be eligible for chapter 13 bankruptcy. However, the rules for these amounts change from time to time and you must seek professional advice or check the government website to get the latest figures.
Also, your past history of bankruptcy filing (previous 180 days) is checked in order to ascertain your seriousness and respect for previous orders from bankruptcy courts.
Chapter 13 bankruptcy costs
There are several types of direct costs that are involved in filing chapter 13 bankruptcy. These include the filing costs, administrative costs, the lawyer fee etc and other costs based on all the professional services/advice you are seeking or using. However, besides these direct costs there are indirect costs too. These indirect costs are mostly in terms of loss of reputation/respect and a big dent on your credit report (which in turn translates into almost no recourse to any kind of loans). It is basically just how you look at it. But in any case, bankruptcy should be your last option.
Chapter 13 bankruptcy benefits
The biggest benefit from chapter 13 bankruptcy is that it can relieve your stress immediately by stopping all the collection calls from your creditors. Yes, you will need to stick to the repayment plan and work your way out of your debt problems (so, don’t think of it as an easy way out); but it does provide immediate relief. In that sense, you could also equate it to a debt consolidation loan.
Also, one big advantage is that it can stop foreclosure proceedings on your home and hence prevent you from getting homeless. However, you need to follow the repayment schedule as decided by the court. Also, you must file for chapter 13 bankruptcy in time and not delay it to a point when the foreclosure has already happened.
So, chapter 13 bankruptcy does bring relief to the stressed debtor. But that doesn’t mean that you should treat bankruptcy as the solution for your debt problems. There are other means of tackling debt problems that you should first try out and only if you are not able to get any respite should you seek bankruptcy as an option. These other means include debt consolidation, debt counseling and debt negotiation/settlement.
Now, all this is quite a simplistic interpretation of the chapter 13 bankruptcy law. However, there are various intricate issues that surround chapter 13 bankruptcy and if you are filing for chapter 13 bankruptcy… it would be best to get professional advice from a bankruptcy lawyer/attorney.